Evidence and Sampling Flashcards
In respect of an assurance engagement, which one of the following is the least persuasive method of gathering evidence?
A. Inspection of a purchase invoice
B. Inspection of a sales invoice
C. Inspection of inventory by the auditor
D. Reperformance of a supplier statement reconciliation undertaken by the client
B. Inspection of sales invoice
Sales invoices are documents which are generated by the responsible party, so may be prone more error than the other methods. This is the least persuasive!
Should this cause the sample size to increase or decrease?
Decrease in the assessed level of tolerable misstatement
Increase
Should this cause the sample size to increase or decrease?
Increased in the assessed risk level
Increase
Should this cause the sample size to increase or decrease?
Discovery of more misstatements than were anticipated during testing
Increase
True/False
An amount disagreed by a customer because an invoice had been paid two days before the year end and cleared shortly after the year end, did not constitute a misstatement for the purposes of drawing a conclusion for the whole population.
True
This is merely a timing issue
True/False
An amount disagreed by a customer because a credit note had been issued by the entity a month before the year end did not constitute a misstatement for the purposes of drawing a conclusion for the whole population
False
This indicates that the credit note may not have been processed to the receivables ledger, which would be an error that could also be true of other potential credits due on the ledger (due to other people within population)
An amount disagreed by a customer because they had paid the balance some time earlier, which further enquiry revealed had been posted to a different customer account, did constitute a misstatement for the purposes of drawing a conclusion for the whole population.
False
This is a misposting to the wrong receivables ledger account and does not affect the total balance within the ledger (which is the same as the balance of the nominal ledger control account)
Which two of the following should be determined as material uncorrected misstatements?
A. An isolated misposting between two supplier accounts which is below materiality
B. Misstatement which is below materiality and resuls in director’s bonus targets being met
C. An immaterial misstatement of assets which results in debt covenant not being breached
D. Monthly bank reconciliation was not prepared in August as the cashier was on holiday
B and C
D relates to a test of controls
Which of these tests would give the most persuasive evidence that a control operated as the assurance providers had been advised?
A. Inspection of the controls handbook
B. Inquiry of the staff operating the control
C. Observation of the staff operating the control
D. Reperformance of the control by audit staff
D. Reperformance of the control by audit staff if the strongest test here
Does this account need primary testing for overstatement or understatement?
Assets
Overstatement
Does this account need primary testing for overstatement or understatement?
Liabilities
Understatement
Does this account need primary testing for overstatement or understatement?
Income
Understatement
Does this account need primary testing for overstatement or understatement?
Expense
Overstatement
True/False
The risk that the auditor’s conclusion, based on a sample, may be different from the conclusion if the entire population were subjected to the same audit procedure is sampling risk?
True
True/False
The risk that the auditor might use inappropriate procedures or might misinterpret audit evidence and thus fail to recognise a misstatement or deviation is non-sampling risk
True
